India’s Regulators Seek to Rein In Internet Giants

Chetna Kapoor

1 year ago

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In India, U.S. companies dominate the internet. Facebook’s WhatsApp is the most popular app on phones. Virtually every smartphone runs on Google’s Android system. YouTube is the favorite video platform and Amazon is the No. 2 online retailer.

For some Indian political leaders, it is as if their nation — which was ruled by Britain for a century until 1947 — is being conquered by colonial powers all over again.

And they are determined to stop it.

“As a country, we have to all grow up and say that, you know, enough of this,” Vinit Goenka, a railways official who works on technology policy for India’s governing Bharatiya Janata Party, said at a conference last week.

In recent months, regulators and ministers across India’s government have declared their intention to impose tough new rules on the technology industry. Collectively, the regulations would end the free rein that U.S. tech giants have long enjoyed in this country of 1.3 billion people, which is the world’s fastest-growing market for new internet users.

The proposals include European-style limits on what big internet companies can do with users’ personal data, a requirement that tech firms store certain sensitive data about Indians only within the country, and restrictions on the ability of foreign-owned e-commerce companies to undercut local businesses on price.

The policy changes unfolding in India would be the latest to crimp the power — and profits — of U.S. tech companies, and they may well contribute to the fracturing of the global internet.

In May, Europe put into effect a sweeping new privacy law that gives Europeans more control over what information is being collected on them. In the United States, California just passed a privacy law that gives state residents more protections than Americans at large.

As India sets the new rules of the game, it is seeking inspiration from China. Although India does not want to go as far as China, which has cut off its internet from the global one, officials admire Beijing’s tight control over citizens’ data and how it has nurtured homegrown internet giants like Alibaba and Baidu by limiting foreign competition. At the same time, regulators do not want to push out the U.S. internet services that hundreds of millions of Indians depend on.

For Google, Facebook, Amazon and others, India’s moves would curb a lucrative business avenue — especially after so many of them were blocked in China. India had become the companies’ next frontier for growth.

Salman Waris, an expert in international technology law at TechLegis in New Delhi, said India was trying to establish strong data protections for its citizens, as Europe did, while giving the government the right to obtain private information as it sees fit, much as China does. Foreign tech companies will have little choice but to go along.

“Everyone is going to fall in line and do what is necessary,” Waris said. “These companies have to do it in China and Europe, and they will do it here.”

India’s new policies are still a work in progress, with competing government agencies jousting with foreign and domestic lobbyists and policy advocates to shape them.

But new restrictions are definitely coming, said officials and industry executives involved in the process. The country’s Supreme Court declared last summer that Indians have a fundamental right to privacy and pushed parliament to pass a data privacy law. Prime Minister Narendra Modi and his BJP party have embraced an India-first economic nationalism to address weak job growth before elections next year. Law enforcement authorities are also demanding more legal tools to extract private customer data from WhatsApp, Facebook and financial firms.

“We don’t want to build walls, but at the same time, we explicitly recognize and appreciate that data is a strategic asset,” said Aruna Sundararajan, the nation’s secretary of telecommunications, who has been deeply involved in the policy discussions. “There is a strong feeling in many quarters that the reason that India has not been able to develop a Tencent or Baidu or Alibaba is because we have not been nuanced in our policies.”

The Indian government, which sees data as vital to a whole new generation of technologies such as artificial intelligence, appears particularly determined to reel in Facebook and its WhatsApp messaging service.

Officials were furious after the Cambridge Analytica scandal this year revealed that Facebook had shared private information on 87 million users, including 560,000 Indians, with a political consulting firm that had sought to influence Indian elections.

More recently, the Ministry of Electronics and Information Technology has demanded that WhatsApp create a way to track and stop mass messages, such as a series of false items about child kidnappers that led to the murder of two dozen innocent people by angry mobs.

WhatsApp has refused, saying that building such technology would break the encryption that keeps messages private. The government, for its part, is holding up a new Indian payments service from WhatsApp until it complies with local laws, including a new rule that requires financial data to be stored only in India.

More broadly, the Indian government says it wants to ensure that Indian and foreign companies have to follow the same rules on taxes, data storage, security, pricing and cooperation with law enforcement.

For example, Indian travel agencies complain that current tax laws allow foreign services such as Booking.com to avoid collecting hotel taxes, which can run as high as 28 percent of the room price. The disparity, they say, gives foreign firms a price advantage.

“It’s not about protectionism. It’s about saying if 10 laws apply to me, the 10 laws should also apply to someone else operating in India,” said Rameesh Kailasam, chief executive of IndiaTech.org, a newly formed lobbying group that represents local investors and startups, including MakeMyTrip and the ride-hailing company Ola.

In a statement, Booking.com said it made a “full effort” to comply with Indian tax laws.

The big U.S. technology companies are trying to fend off or dilute the regulations behind closed doors. Many consider the topic so sensitive that they refused to discuss it on the record.

In private, the companies say that the proposals would raise their costs, dampen their ability to use Indian data to improve services and dissuade investments like Walmart’s recent $16 billion deal to buy control of Flipkart, the country’s leading online retailer.

They also warned that India has fewer legal protections than the United States against government searches and data requests, so private data stored in the country could more easily end up in the hands of the police.

The issue may become a topic in trade and economic discussions between the United States and Indian governments scheduled for the fall.

Mukesh Aghi, the chief executive of the U.S.-India Strategic Partnership Forum, a policy group whose board includes top executives at Cisco, Adobe, and Mastercard, said India risked hurting its own economy by imposing stringent rules on foreign tech companies. Forcing data to be stored in India, for example, could prompt similar rules from the United States, which would hurt India’s big outsourcing companies.

India also needs multinational companies to build its tech economy, he said.